For both the Federal gift and estate taxes, a deduction is allowed for certain transfers to a spouse. True False
The correct answer and explanation is:
Answer: True
Explanation:
The statement is correct. Both the Federal gift tax and the Federal estate tax systems allow for a significant deduction for transfers of property to a spouse. This deduction is known as the marital deduction.
The purpose of the marital deduction is to allow married couples to transfer wealth between themselves, either during their lifetime or at death, without incurring immediate federal transfer tax liability. The underlying principle is that a married couple is often viewed as a single economic unit, and transfer tax should primarily apply when wealth passes outside of that unit (i.e., to children, other relatives, or unrelated parties).
For Federal Gift Tax, a United States citizen spouse can make unlimited gifts to their U.S. citizen spouse during their lifetime without using any of their lifetime exclusion amount and without owing any gift tax. The gift is fully deductible under the marital deduction.
Similarly, for Federal Estate Tax, assets that pass from a deceased U.S. citizen spouse to their surviving U.S. citizen spouse (through a will, trust, or other means) qualify for an unlimited marital deduction. This means the value of these assets is subtracted from the deceased spouse’s gross estate, potentially reducing the taxable estate to zero and deferring estate tax until the surviving spouse’s death.
While there are specific rules and limitations (e.g., for transfers to non-citizen spouses or certain types of property interests like terminable interests unless specific conditions are met), the fundamental availability of the marital deduction for qualifying transfers to a spouse is a cornerstone of both the federal gift and estate tax regimes.